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Carphone Warehouse hit by broadband expansion

02/11/2006

Mobile phone outlet Carphone Warehouse suffered lower-than-expected profits in its half-year results, thanks to costs related to its unexpectedly popular 'free broadband' offer.

Carphone Warehouse saw its year-on-year pre-tax profits fall from £37 million in the 26 weeks to October 1st 2005 to just £14.1 million in the equivalent period this year.

Despite the drop, overall revenues grew by 40.2 per cent and its headline profit before tax reached £59.3 million.

However, start-up losses springing from the TalkTalk brand's free broadband offer, which saw the firm receive 625,000 requests for the offer between July and September this year, cost Carphone Warehouse £45.1 million, severely damaging its overall profits.

"This has been a busy six months, during which Carphone Warehouse has delivered another very strong set of results and invested significantly in building its platform for future growth," chief executive Charles Dunstone said.

He described TalkTalk as having reached "critical mass", becoming the third-largest broadband provider in the UK market.

"Our confidence in the future is reflected by the one-third increase in our dividend," he said, highlighting Carphone Warehouse's attempt to allay fears over its currently diminished profits. Total start-up losses for its broadband business are expected to reach £70 million by the end of the year.

Shares in Carphone Warehouse, which have dropped by nearly 20 per cent in the last month following the cancellation of contracts by one of its major suppliers, Orange, rose by 0.76 per cent on early morning trading.

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